NY Fed: Credit card balances reach new low

Average credit scores bump up, too, as consumers pay off debt on their own

Credit card balances fell by a sharp $19 billion in the
first three months of 2013, ending three quarters of increases and setting a
new low for the post-financial crisis era, according to the New York Federal
Reserve Bank.

Delinquencies also reached a post-crisis low, with 10.21
percent of credit card balances in the 90-plus-days-late category, down from
10.57 percent in the previous quarter. It was the best showing since the fourth
quarter of 2008, when delinquencies were 10.18 percent.

"This is clearly an indication consumers are being
cautious about taking on new debt," said Keith Leggett, senior economist
at the American Bankers Association. "We continue to see a change in
consumer behavior with regard to credit cards."

The cut in card debt contributed to an overall 1 percent reduction
in household obligations since the end of 2012, largely the result of lower debt
on mortgages and home equity loans.

The Fed's Household Debt and Credit Report, drawn from Equifax credit report data, did not
indicate how much of the reduction in card balances is due to write-offs of
unpaid loans by banks. But the figures suggested that much of the reduction was
the result of consumers paying down their card balances on their own.

While balances fell $19 billion to $660 billion,
available credit on cards actually rose by $20 billion in the first quarter,
the Fed report said. The number of card accounts was essentially flat at 383
million.

Economic measuring stickThe state of household budgets is viewed as a measure of
health in the consumer economy. Overall household debt, including mortgages,
auto loans, student loans as well as credit cards, fell by $110 billion. The overall household debt burden of $11.23
trillion is 11 percent lower than its peak in the third quarter of 2008.

"After a temporary deceleration in the previous
quarter, the data suggest that household deleveraging has resumed its previous
trajectory," said Wilbert van der Klaauw, senior vice president and economist
at the New York Fed, in a statement accompanying the report.

In the final three months of 2012, household debt increased slightly for the first time since 2008, which Fed economists saw as sign of
healing in consumer debt markets. Credit card debt contributed to the uptick in
that quarter, growing by $5 billion.

In the short run, household parsimony is a drag on consumer
spending, keeping the economic recovery from being as robust as it might be,
Leggett said. But consumers' frugality now should lay the foundation for
stronger growth down the road by building a healthier basis on which to
increase borrowing and spending.

"Once you right-size your balance sheet, you should be
better able to take on debt in the future," Leggett said.

Average credit score risesSigns of consumers' financial health were little changed.
The average credit score gained 1 point to 696 in the first quarter,
maintaining its pattern of hovering tightly around the 695 level for the past
two years. And the fraction of consumers with debts in collection was about the
same at 14.64 percent, compared to a pre-crisis level of 12.9 percent in
mid-2008. However, the average amount in collection did fall about $66 in the
quarter, reaching $1,433.

Student loans continued their upward march in the first
quarter, gaining $20 billion. An earlier New York Fed study indicated that the
growth in student loans is absorbing resources that might otherwise be funneled
into other spending, including auto loans and mortgages. However, delinquencies of student loans were down in
the first quarter, part of an across-the-board improvement.

The overall 90-day
delinquency rate on household debt fell to 6.07 percent from 6.31 percent at
the end of last year. That's down from a peak of 8.71 percent in 2010.

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